A good business broker should be effective in educating their seller clients about the deal process and what to think about before running out and shopping their client’s company to potential buyers. There can be no greater mistake than not investing sufficient up front time reviewing the detailed accounting records of a seller to ensure that the data to be presented to a potential buyer has integrity and that financial statements properly allow for a reviewer to be able to determine the key performance indicators such as size of customer base, number of routes, customer retention rates, average revenues per technician, gross profit margins, technician tenure, types of revenue channels and recurring revenue model (i.e., customers under contract for monthlies, bi-monthlies, quarterlies, etc.)
A potential buyer is not likely to make an offer on a simple gross revenue of the seller. Many business owners think that is how purchase price is determined. Unfortunately, every dollar of revenue in the income statement is not the same as any other dollar of revenue for purposes of determining an appropriate sales price for the enterprise. Would you pay the same price for a plain slice of pizza versus one that had four toppings? Savvy buyers are acutely aware of the different values for differing sales channel within a pest control operation.
A good broker within the industry knows this and has to be able to have answers to what is being sold – a plain pizza or one with all the toppings. The price to ask requires a good broker to know exactly where the value of a particular seller is located. Each pest control operation is not generic and worth the same as all other pest control operations.
Accordingly, pulling the trigger can quickly backfire on a business broker and seller if a buyer has expressed interest and is ready to evaluate the financial and operational information immediately. There can be nothing worse to chill a deal than to tell a seller you have one or more suitors but now financial and operational statements need to be prepared, updated and analyzed to answer the questions that should have been anticipated and prepared for prior to soliciting a potential buyer.
It is basic common sense and failure to properly prepare for the process can result in lost opportunities for the unprepared seller and business broker.
Check out our video on why you should work with an M&A Team !
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